World economy improving, but be wary of 'black swans'

The IMF Managing Director said growth would not be sustainable if it is not inclusive and the world would need to take care of massive inequality issues that may challenge the growth.PTI | January 20, 2017, 23:22 IST

Davos: As the annual talkfest of the rich and powerful from across the world reached its last day here, top economic leaders felt the global economy is improving though mostly on internal factors even as they warned of new 'black swan' events post elections in various countries.

Discussing the global economic outlook on the final day of the WEF Annual Meeting, they also hoped that 'revolution' in Washington -- referring to Donald Trump assuming office of the US President from today -- would not be as bad as was feared.

Referring to elections in some key European nations and elsewhere, Lagarde said if the world ends up thereafter "on a race to bottom on tax front, financial regulation and trade that would have devastating consequences, (then) that would be a 'black swan' event for me." Generally, 'Black swan' refers to an event that is normally not expected and is very difficult to predict.

The IMF Managing Director said growth would not be sustainable if it is not inclusive and the world would need to take care of massive inequality issues that may challenge the growth.

Bank of Japan Governor Haruhiko Kuroda, however, appeared optimistic and said there may even be a 'white swan', noting that there may be an upside in the US economy and eventually there is no going back to protectionism.

Lagarde said advanced economies are doing a bit better than what we anticipated especially Euro area and Japan. She also said the question for the US is how fiscal stimulus will work with trade policies of Donald Trump.

The combination of US fiscal and trade measures will probably not be a net positive overall, she added.

Kuroda said Asian economies have been growing and Japanese economy has shown clear signs of recovery. He said the global economy is at a turning point with uptick in manufacturing and trade last year.

UK Chancellor of Exchequer Philip Hammond said the EU is likely to remain UK's single biggest trade partner and their success would be UK's success too.

According to him, the UK has ended 2016 as the fastest growing of the developed economies but forecast for 2017 will be lower.

BlackRock's Larry Fink said the US would need to focus on its big lenders as it is the biggest borrower of the world, while he named Japan and China as the top two lenders.

Further, he said the key concern for advanced economies is an ageing population that has not done proper retirement saving.

Germany's Finance Minister Wolfgang Schauble said Europe must become much more competitive, adding that German economy this year is driven by internal consumer demand and therefore has a resilience against geo-political risks.

Schauble also said that he was quite confident that the US would not leave the defence of free trade only for Chinese leadership.